The Invisible Recovery

Author and economist Doug Henwood on jobless recoveries, the two Americas, and the "Wal-Mart effect"

For months now the front pages of daily papers across the country have heralded sporadic sightings of a fresh economic upturn. But for most working Americans, any return to prosperity is barely a rumor at present. While it's true that the economy has stopped shedding jobs for the moment (after losing a net 2 to 3 million of them in the first two and a half years of the Bush administration), the turnaround is so far a fairly paltry one in which a limited number of new jobs mostly involve menial work for low pay. Meanwhile the specter of crushing debt--both national and household--looms ever larger. Last week I caught up with economist Doug Henwood, the longtime publisher of the Left Business Observer newsletter and author of the newly released After the New Economy (New Press, $24.95), which is possibly the best and most accessible survey of myths and facts regarding the '90s boom and the stagnation of the present day.

City Pages: What's your view of the apparent rebound in the third quarter? How do you read the signs?

Doug Henwood: Things are improving, there's no question. But very slowly. That 7.2 percent GDP number seems to suggest greater improvement than is really happening on the ground, and there's a chance it will be revised down. It sort of illustrates what the present situation is like. You get some good-looking numbers, high-level numbers. But the actual numbers in the labor market are still pretty weak. Unemployment is--certainly it's good to have three straight months of growth after seven of decline, but the numbers are still a fraction of what they would be in a normal month, much less what they would be in the early stages of an economic recovery. In a normal month we'd be seeing somewhere in the neighborhood of 220,000 jobs created based on long-term historical averages. And a typical early recovery would see 300-400,000 jobs a month. A hundred thousand or 125,000 a month is weak tea next to that.

Jonathan Stavole

CP: Do you think it might signal the kind of turnaround that could carry Bush through next year without the political heat over the economy that we've expected?

Henwood: It's a possibility, yeah. If it carries on for several more months, even if it's not going like gangbusters, the mere fact of improvement may be enough to get Bush re-elected. It's exactly the opposite of what we thought a few months ago. Iraq looks really, really fucked-up and the economy seems to be healing slowly. You have to look at this economic improvement in the context of the kind of fiscal stimulus it's gotten--enormous amounts of tax cutting and rebate checks, and we're still getting a weak recovery. It's not surprising that we're getting a rebound, but given the kind of money Bush is throwing at it, it's not that impressive. But it may be enough to convince people it's getting better.

CP: One question I've heard a lot of people pose is why there's been so little talk of a "war dividend" stimulus to the economy.

Henwood: Well, a lot of the money's being spent on what they call "support services." In the GDP accounts for the second quarter, for example, the military component was growing at a 45 percent annual rate, and that was the highest since 1951. But it was heavily concentrated in these support services--carrying troops over, setting up bases. The kinds of contracts that Halliburton is getting. It's not like the old days when they were making lots of trucks and uniforms and things like that. The old industrial economy got a lot of stimulus out of war procurement. Now it's these services, and high-tech weaponry, which is highly specialized, highly automated, and doesn't really generate that much job growth.

I was talking to a union organizer a couple of weeks ago who was trying to organize a plant where they make the bulletproof vests. These are really low-wage jobs, just classic garment industry jobs where the workers only make a few bucks an hour. So it's not like these people are getting high wages out of war procurement. It's basically sweatshop conditions.

CP: You write at considerable length about income and household debt in the book. It seems hard not to notice a lot of bad omens out there. I'm thinking particularly about the continuing explosion of personal debt. Why is personal debt increasing so dramatically? Is it a matter of people going into the hole to maintain a lifestyle while their real wages are stagnant or slipping?

Henwood: I think that's a good bit of it. But the recent debt explosion has not been so much in credit cards. It's been all about housing-related debt. People have been borrowing enormous amounts of money against appreciated house values--about $400 to $600 billion a year for the past couple of years. That's really kept consumption going during the recession. I guess it sort of looks like free money. You have this great housing bubble--and by some measures it is one of the great housing bubbles we've had; if you just look at the ratio of house prices to household incomes, we're really tying records from the late '70s and late '80s. And when people go to refinance the house, with interest rates as low as they are, they see they can take out a few thousand bucks and it feels just like money coming from the sky. It's kind of irresistible.